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Exorbitant Privilege? On the Rise (and Rise) of the Global Dollar System

Author

Listed:
  • Perry Mehrling

    (Boston University)

Abstract
The global dollar system, though repeatedly reported to be on its last legs-most recently in the Global Financial Crisis of 2008, but most famously in the Nixon devaluation of 1971-has repeatedly instead consolidated and gone on to further geographical expansion (McCauley 2021). The key currency approach to international monetary economics, first put forward by John H. Williams in the aftermath of the 1931 devaluation of sterling, suggests that such resilience arises from the actions of market practitioners who appreciate the convenience of a global means of payment. So the question arises, why has the key currency approach remained a minority view, if not among practicing bankers then certainly among practicing academics? This paper proposes two main reasons—the discredit of monetary optimism during the depression, and the subsequent fateful adoption of Walrasian equilibrium as the frame for academic discussion after WWII.

Suggested Citation

  • Perry Mehrling, 2023. "Exorbitant Privilege? On the Rise (and Rise) of the Global Dollar System," Working Papers Series inetwp198, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:inetwp198
    DOI: 10.36687/inetwp198
    as

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    File URL: https://doi.org/10.36687/inetwp198
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    References listed on IDEAS

    as
    1. Eichengreen, Barry, 2012. "Exorbitant Privilege: The Rise and Fall of the Dollar," OUP Catalogue, Oxford University Press, number 9780199642472.
    2. Warren Young & William Darity, Jr., 2004. "IS-LM-BP: An Inquest," History of Political Economy, Duke University Press, vol. 36(5), pages 127-164, Supplemen.
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    More about this item

    Keywords

    key currency approach; Hahn Problem; sterling system; dollar system; exorbitant privilege.;
    All these keywords.

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • F3 - International Economics - - International Finance
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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